Shoprite warns VAT hike would cripple South Africans

South African consumers’ nascent recovery would be scuppered by tax increases on food, according to the chief executive officer of Africa’s largest supermarket chain.

Finance Minister Enoch Godongwana was due to have tabled the nation’s budget in parliament on Feb. 19, but his speech was delayed after members of the coalition government rejected plans to raise value-added tax by two-percentage-points. A revised plan will be presented to lawmakers next week.

“I hope that it’s not going be the case that we will see that increase because consumers just can’t afford it,” Shoprite CEO Pieter Engelbrecht said in an interview from Cape Town after the company announced first-half earnings on Tuesday.

Businesses that have had to build their own power and water supplies after years of cuts as well as invest in new distribution centers to hold more stock because of poor local production capacity and delays at ports, are equally unlikely to be able to absorb such increases on behalf of customers, Engelbrecht said. 

“The two things that really worry me are the incredibly high cost of food and high unemployment,” with few local businesses reporting that they’ve created net new jobs, he said.

Consumer spending has only just started to recover, boosted by benign inflation, interest-rate cuts and the introduction of a so-called two-pot pension system that allows savers early access to part of their retirement funds without penalties.

Still, government has recently engaged with South African companies about food prices and possible tax increases, Engelbrecht said. Shoprite along with other global retailers are trying to figure out how they can ease food inflation by using sophisticated software, artificial intelligence, breaking down cost components and possibly collective buying, he said.

While the local inflation rate has declined and is helping Shoprite boost volume growth, the risks remain.

“People are desperate,” he said. For most South Africans, “it’s not like I’m buying less because I have less money. It’s the fact that my money doesn’t go as far anymore.”